Has the milk turned sour?
What Mattered Today
Another day another growth stock disappoints with downbeat guidance and gets taken to the cleaners – this time it was the Tasmania based organic baby food company, Bellamy’s (BAL) dropping more than ~40% early on before closing down $5.28 (-43.53%) at $6.85. In short, it’s a growth stock trading on a growth multiple (30x) and they now say that if trends in the first half continue into the second they won’t grow revenue.
Based on Bellamy’s current view of its end markets, revenue for 1HFY17 is anticipated to be approximately $120 million. While Bellamy's remains positive regarding its long term outlook, if current trends in its existing channels-to-market continue, 2HFY17 revenue will be similar to the first half
It’s pretty much the same announcement made by Healthscope (HSO) a few weeks ago, however HSO based their call on just one quarter of data while Bellamy’s has had the benefit of a full half, which suggests they’ve got a better foundation for making it. The announcement touches on a few interesting points starting with FY17 is a transitional year underpinning the Companies long term growth profile – which could be loosely translated to ‘heightened risk of disappointment in the shorter term’. They also make reference to a temporary volume dislocation in China due to regulatory changeover which highlights the increased risk of having exposure to the vagaries of Chinese regulation. Bellamy’s have got a good business in Australia, but China is where the growth is and it’s that growth that was being used to justify the high multiple.
Bellamy’s (BAL) Daily Chart
Given the big drop in share price in early trade, we naturally tossed around whether or not it was worthwhile taking a position however as has been the case in recent times, the market typically takes a few days to digest negative shocks. Bellamy’s has also been a stock in the cross hairs of shorters with around 12% of the company (12m shares) currently short sold – so we might see some short sharp rallies as some cover however the news today simply gives those short the stock (and short the China theme) more reason to think they’re right. Anyway, the stock is now back on the radar and it’s one we are thinking about given the quality of their domestic operations, however there might be too many things working against it in the short term.
Elsewhere, Archer Daniels Midland’s has thrown the towel in and sold their 19.9% stake in Graincorp (GNC) at $8.53 – about $387m worth of stock after the then Labour Treasurer and now Ambassador to the US Joe Hockey blocked the proposed $3bn takeover back in 2013, and it became clear that the Libs would likely retain the same stance. The stock traded up on the day and is now worth putting back on the radar – the Midlands stake was causing some issues given they were a known seller and institutions knew they’d be able to pick up stock in some type of placement at a discount to mkt– we now have a resolution which should be a positive for the shares going forward
Graincorp (GNC) Daily Chart
As we wrote this morning, we remain bullish the ASX200 into 2017 but seasonally we are entering a poor 2 weeks for stocks, hence we would be patient with any buying for a potential Christmas rally. On the market today we has a range of +/- 56 points, a high of 5,500, a close on its low of 5,444, off -56pts or -1%.
ASX 200 Intra-Day Chart
ASX 200 daily chart
Sectors
ASX 200 Movers
Select Economic Data - Stuff that really Matters in Green
US non-farm payrolls tonight the main economic print + importantly wages growth will again be in focus given this week’s emphasis on the reflation trade. In Europe some risk is obvious around the Italian referendum on constitutional reform, and this could prompt some volatility to kick things off next week. 
What Matters Overseas
FUTURES WEAK….
Have a great Weekend and watch for the MM report out on Sunday morning
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